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Leaner hospital supply chains could open doors for new healthcare businesses

on January 11, 2012 Source: Kauffman Foundation

Gaining vendor status with big-time hospitals is on the wish list of many an emerging healthcare startup.

Unfortunately for them, that’s not an easy task to accomplish, especially given the propensity of hospitals to deal effectively with numerous supply chain issues.

There’s plenty of money to be made via streamlined supply chain programs – and plenty of money to be lost if hospitals don’t get it right.

"Hospital administrators strive to improve operations in their facilities because of the far-reaching, broadly positive impact it can have. Administrators should look first to streamline and optimize their hospital's supply chain, which accounts for between 20 to 30 percent of a hospital's budget," says Gaby Chahine, a partner with Booz & Company, a global management consulting firm, which recently issued a research report on the topic.

"Hospital SCM typically goes through three stages of maturity, and even in mature markets, few hospitals have made significant progress toward the most advanced level."

Hospital administrators may be unsure which path to take to connect with vendors and improve their supply chain operations.

That’s the takeaway from a new paper form the Center for Innovation in Healthcare Logistics at the University of Arkansas.

The research is all about developing universal standards for healthcare data – standards that would better help hospitals identify “materials, locations and partners within the complex U.S. health-care system.”

The center says it has the perfect tool for that job: a data analysis tool called the Levels, Readiness and Impact Model, which is free to hospitals (or free for healthcare startups to give to hospital contacts) and easily available in an online spreadsheet format.  The LRIM tool focuses on emerging GS1 global data standards (GS1 is an international organization dedicated to creating and enhancing standards for “improved supply chain efficiency”.)

How can new global standards help hospitals and the smaller healthcare vendors they routinely do business with? The Center says the new software aids healthcare providers by better categorizing listed items (like medical devices or healthcare accounting software sold to hospitals by vendors), much like the retail industry has done over the years using bar code technology. GS1 has developed standardized global trade item numbers (or GTINs) that do much the same task as bar codes, and may significantly improve supply chain operations, and open up more financial opportunities to healthcare vendors.

“Retail and other industries adopted universal standards decades ago with the familiar uniform product barcode on almost every label,” explains Ron Rardin, center director and   an industrial engineering professor at the university. “But health care has not followed suit, and the unfortunate result is a lot of confusion, waste and risk to patients.”

Putting the system to use could help hospitals get back on track, and strengthening business partner relationships is a big part of that process, Rardin adds.

“Many hospitals know little about what is involved or the benefits they might realize from implementing the GS1 system of standard identifiers for materials, locations and partners within their supply operations,” he says. “We think our tool has the potential to accelerate adoption of such standards and thus increase safety and efficiency and reduce waste.”

Here’s a list of the businesses that the Center says would be positively impacted by globalized supply chain standards for hospitals:

  • Acute-care hospitals
  • Long-term facilities
  • Surgical and diagnostic centers
  • Physicians’ clinics
  • Pharmacies and other facilities
  • Laboratories, equipment and software manufacturers, suppliers and distributors
  • Group-purchasing organizations

A 2009 study by university researchers Heather Nachtmann and Edward Pohl cites current hospital supply chain operations as “immature” and “expensive” with “significant barriers to efficiency”.

Again, maybe – just maybe – taking a page out of the retail playbook and streamlining hospital supply chains via universal standards could improve the healthcare business model, and open some doors for healthcare entrepreneurs along the way.

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